Success in the markets of Asia is the prize for businesses in every sector and banking is no exception. In recent years, consumers across the Asia Pacific region have begun to embrace virtual banking. But fraudsters and criminals are watching too. With opportunity, comes risk – and regulators are warning that virtual banks need to play close attention to fraud detection and customer due diligence.

The number of virtual banks across Asia is set to grow significantly in the coming few years. China and Hong Kong are leading the charge; brands such as WeBank (which has gained more than 200 million customers since its launch in China in 2015), MYBank, ZA Bank and Airstar are well established.
Elsewhere, Singapore issued its first digital banking licenses in 2021 and its first two virtual banks are due to begin operations this year, while Malaysia’s central bank issued its first digital banking licenses early in 2022 and received 29 applications from interested parties. Other nations are joining the race; the Bank of Thailand plans to issue regulations that will allow for virtual banks later this year.

The challenge for the sector is that virtual banks, which are subject to similar regulations as conventional banks, are as vulnerable to fraud as their bricks-and-mortar counterparts. As the sector evolves, regulators are watching closely and urging virtual banks to build strong compliance and risk management capabilities.

As banks digitize their operations, criminals and fraudsters have rapidly adapted their tactics. In order to protect their customers and their own business, virtual banks need robust know your customer (KYC) and customer due diligence (CDD) processes, in an environment when they never meet their customers face to face and every interaction is by email, online or through telephone support. Virtual banks also need to be able to distinguish between human and bot interactions, as criminals increasingly use Remote Access Tools to try to take over customer accounts.

The answer lies in technology. Online customers leave a distinctive and unique digital footprint that is invaluable in verifying their identity. We work with banks across the world to help them embed sophisticated anti-fraud technology into the customer journey, allowing them to carry out robust customer due diligence and other compliance checks without disrupting the customer experience. Our Emailage® solution, for example, uses email intelligence as a core identifier. Email addresses are rich in history and behaviour; our technology verifies the address and domain and searches for evidence of previous fraudulent activity. Our ThreatMetrix® solution, used by more than 5,000 global brands, draws on billions of digital data points every year to build an digital identity and authentication platform that grows more powerful with every transaction.

Virtual banks must take security seriously. The risks from fraud are far-reaching in terms of financial risk of fraud losses and regulatory fines and the time and resources spent on fixing mistakes. But arguably the bigger risk is reputational – the damage caused to trust and confidence in a new service provider could be catastrophic.

Building robust internal controls and compliance processes is one of the most challenging aspects for any new bank. But virtual banks have advantages; they do not have the complication of legacy systems and their natural affinity with technology means that they are ideally placed to take advantage of the latest technology to create strong, efficient risk management systems. A different way of banking demands a different approach to fraud risk management – but technology is on your side.

To learn more, visit our Fraud and Identity Management solutions page.